The ECB’s Bailout Of The ECB

We finally saw the PSI details – the press release itself was confusing about how Greece will proceed once the participation rate is known, but nothing about the terms were new.

In the meantime a lot of “new” bonds have been created.  These must be the bonds that the ECB owns.  The amount the ECB owns isn’t listed yet, and it is possible the list is incomplete, but I find it interesting already, and I’m beginning to understand why the ECB talks about “profits” on its bond portfolio.

The ECB only owns 2 English law bonds.  Two bonds show up with the currency as GRD, but I’m guessing that was just a mistake or typo and they are in Euro.

I really want to see how much the ECB owns of each of these issues, but the portfolio seems heavily weighted to the front end of the curve.  Of the English law bonds, they only own 2 bonds, and they are the first 2 English Law bonds denominated in Euros that mature.

On the Greek law bonds (GGB’s) I looked at the August 20, 2014 date.  The ECB owns 19 GGB bonds, and 13 of them are on or before this date.  In the “private” sector, there are 24 GGB bonds with a total outstanding amount of just over €80 billion.  There are 34 bonds that mature after that with a total outstanding amount of almost  €160 billion.  So 41% of GGB bonds mature on or before August 2012 and that represents only 33% of the GGB notional outstanding.  We don’t know the notional amounts yet that the ECB holds, but 68% of the GGB bonds they have are on or before this date.

Taking a quick looks at Bloomberg data, they have €237 billion of GGB’s and €18 billion of English law bonds.  The press release says PSI applies to €206 billion.  That would show that the ECB owns €49 billion (I find slightly different numbers, but close enough).  The two English law bonds that the ECB holds total just over €500 million, so even if the ECB owned 100% of those 2 issues, it would hold over €48 billion in GGB’s.  Spread across 19 bonds, that is over €2.5 billion average holding.

How much of this year’s bailout is going to the ECB?  How much of the March 20^th bonds is held by ECB?  How much of the recently paid December bonds does the ECB hold? No wonder the ECB talks about “profit”.  It is almost impossible to believe that they haven’t already been paid par on some earlier redemptions.

Since we live in a world where a lot of European banks (and sovereigns) rely directly and indirectly on the ECB for funding, no one will complain, but it does seem likely that the ECB is going to be getting a large portion of the bailout money.  At the very least they should be giving Greece the benefit of the discount they purchased these at.  At the worst, extremely large front end holdings may encourage some holdouts.  It will be interesting to see the sizes held and confirmation that this is their entire portfolio, but it seems to me as though it will be heavily front end loaded and may make PSI a lot more interesting – it may take far less capital to create blocking positions in front end bonds than people realize if the “private sector” float is much smaller than previously thought.